Consumerism | - Part 3

Retail Sales Disappoint, Weather Blamed

The Commerce Department reported (.pdf) that, following a downwardly revised seasonally adjusted decline of 0.1 percent in December (originally reported as a gain of 0.2 percent), retail sales in the U.S. fell 0.4 percent in January, the largest drop in ten months and the first back-to-back decline in almost two years.

Inclement weather was blamed for keeping Americans away from auto showrooms as car sales slumped, but consumers weren’t shopping as much elsewhere either as sales for only four of the thirteen major categories rose.

January Retail Sales

Excluding the 2.1 percent drop for motor vehicles and parts, sales were flat last month after a gain of 0.3 percent the month prior and, excluding both autos and gasoline, sales fell 0.2 percent after a gain of 0.1 percent.

The news would have been even worse if not for rising fuel prices that pushed gasoline station sales 1.1 percent higher. Home improvement stores were one of the few other areas where receipts were higher, up 1.4 percent in January, as rising real estate prices over the last year or so have encouraged spending in this area.

After autos, declines were led by department stores where sales fell 1.5 percent and sporting goods stores where receipts were 1.4 percent lower. Elsewhere, sales saw modest, but broad-based declines averaging about one half percent.

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Confidence Remains (Relatively) High

Earlier today, the Conference Board reported that consumer confidence rose again this month, up from a downwardly revised 77.5 in December to 80.7 in January, as the current conditions index rose to the highest reading of the recovery, up 3.8 points to 79.1.

The expectations index rose just 1.8 points to 81.8, however, all of these readings remain well below the 90-to-110 range that is typical of non-recession periods as shown below. Note that Hurricane Katrina in late-2005 was the only occasion following the 2001 recession that confidence dipped below the 90 mark by any significant amount.

Also today, the Case-Shiller Home Price Index showed home prices continuing to rise, up almost 14 percent from a year ago for the biggest annual gain in almost eight years.

But, orders for durable goods disappointed, down 4.3 percent in December versus analysts’ estimates for a gain of 2 percent. Excluding the volatile transportation component orders fell 1.6 percent, and this will temper some of the enthusiasm surrounding fourth quarter growth that is set to be released on Thursday.

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Wealth is Relative

Here’s a pretty interesting article by Morgan Housel at Motley Fool in which he looks at two very different approaches to making and spending money.

Gary Kremen founded online dating site When The New York Times interviewed him in 2007, he was 43 years old and worth $10 million. Still, he didn’t feel rich. He lived in Silicon Valley with friends who were far richer. Kremen “logs 60- to 80-hour workweeks because, he said, he does not think he has nearly enough money to ease up,” the Times wrote. “You’re nobody here at $10 million,” Kremen said.

Now meet Pete, who doesn’t want to give his last name. He’s 39 years old and has been retired for almost a decade. He lives in Colorado with his wife and 8-year-old son in what he calls “a badass life of leisure.” Pete and his wife quit work at age 30 when they owned a house outright and had around $600,000 in investments, generating enough money to spend $25,000 a year for life, “which goes quite far if you have no rent or mortgage to pay” he told MarketWatch this week.

Wealth is relative. Those are probably the three most important words in personal finance. Gary makes $25,000 a week and feels inadequate. Pete makes $25,000 a year and feels so rich that he retired eight years out of college. How rich you are has very little to do with how much money you have in the bank and a lot to do with your expectations of what you need that money to do for you. It’s a two-part equation, and a lot of people become miserable ignoring the second part.

I’d never heard the term hedonic treadmill before, but, presumably that’s because I haven’t felt the need to go searching for what makes me unhappy.

It is surely a cultural thing (having much to do with being half-German), but I’ve never really understood the popular American approach toward money in which you ratchet up your spending and raise your standard of living at least as much as your earnings increase.

Retail Sales Better Than Expected

The Commerce Department reported(.pdf) that U.S. retail sales rose more than forecast last month, up 0.2 percent in December after a downwardly revised gain of 0.4 percent in November, however, the multi-month trend is clearly lower as shown below.

Grocery store sales and bargain hunting amid year-end discounting at clothing stores and internet retailers drove the overall increase as auto sales fell sharply.

Sales of motor vehicles and parts fell 1.8 percent after rising 1.9 percent the month prior and, excluding autos, overall sales rose 0.7 percent in December. Excluding both automobile and gas station sales, receipts rose 0.6 percent.

Food and beverage sales led advancing categories with a gain of 2.0 percent, followed by an increase of 1.8 percent at clothing stores and 1.4 percent for nonstore retailers. Curiously, sales at electronics and appliance stores fell 2.5 percent last month after dropping 2.1 percent the month prior and this category is now down 1.4 percent from a year ago.

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